Mailbag: Government could learn from Congress of the '90s

August 13, 2010

I would like to add to Mr. Lightfoot's argument about the Roosevelt administration in prolonging the Great Depression. After President Hoover tried to tax America into being prosperous, FDR decided he would even do bigger tax increases in the name of prosperity. This led to a double-dip depression and made everything worse. Higher taxes on everyone, especially the so-called rich, simply retards employment, government revenue and sales for businesses.

It seems to me that the current administration and Congress should take a look at the 1990s when President Clinton was forced by a GOP-controlled Congress to balance a budget and rein in spending. I think the current administration could learn a lot from this. It seems every time a Washington bureaucrat tries to fix something via new taxes, laws or regulate something, it ends up with unintended consequences.

I would refer you to an excellent historical account of the Depression years and unintended consequences the Washington bureaucrats caused in Amity Schlaes book, "The Forgotten Man". The voters could help rein in this administration's spending by giving the GOP control of the House and Senate.

Advertisement

Terry Johnston

Newport Beach

*

Differences of opinion on New Deal

"President Obama is doing pretty much what he said he was going to do. The effects were easily predictable as they were, as far back as the FDR administration."

He leads by quoting Henry Morgenthau (former Treasury secretary-cum-critic) who dismissed the New Deal as a total failure.

Lightfoot claims that the New Deal prolonged the Great Depression by seven years. He gets his seven years from a 2004 paper by UCLA economists Cole and Ohanihan. But their conclusion is at odds with historical data, argues Gauti B. Eggertsson of the New York Federal Reserve Bank ("Was the New Deal Contractionary?" 2008).

In more than 40 dense pages, Eggertsson writes: "Deflation turned into inflation in March 1933 when FDR took office and announced the New Deal. Output, industrial production, and investment responded immediately. Annual GDP grew by 39% in 1933-37 and monthly industrial production more than doubled. This is the greatest expansion in output and industrial production in any four-year period in U.S. history outside of wartime."

According to Eggertsson, Cole and Ohanihan err in assuming the economic shocks that caused the Depression were largely over in 1933 and gone by 1936. Hence the difference in their projections.